Finnish state pension fund to up infrastructure exposure, buy Elenia

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VER, the Finnish state pension fund, has agreed to acquire a 10% stake in Elenia Oy, Finland’s second largest power distribution system operator, and Elenia Lämpö Oy, Finland’s ninth largest district heating network.

VER’s consortium partners are Allianz Capital Partners, and Macquarie Infrastructure and Real Assets, who each take a 45% share, for an undisclosed sum.

The power companies are currently owned by pension insurer Ilmarinen, GS Infrastructure Partners and 3i.

Maarit Säynevirta, head of alternative lnvestments at VER, said: “We are looking at core infrastructure assets producing a cash flow and also to protect against inflation.”

She told IPE that over 2018, VER intended to increase its infrastructure fund investments to 2% of assets.

At 30 September 2017, infrastructure funds made up 1.3% of VER’s overall €19.4bn portfolio, with a further direct investment that forms part of the non-listed equity allocation. Listed equities made up 42.7% of the portfolio, with 3.6% in other equities. Liquid fixed income totalled 41.4%, with a further 1.1% in other fixed income.

Maarit Säynevirta, head of alternative investments at VER

Hedge funds amounted to 3.7%, with real estate funds at 2.9%.

VER’s asset allocation is subject to Ministry of Finance guidelines, which limit equities to 55% of the portfolio, while fixed income must account for at least 35%. Other investments may not exceed 12% of assets.

Over the calendar year 2016, infrastructure was the strongest-performing asset class in VER’s portfolio, with a 13.8% return.

Over the nine months to 30 September this year equities generally performed better, but infrastructure still returned 8.3% over that period, thanks to “healthy dividends and successful exits,” according to the pension fund. The overall return was 5.2%.

VER’s strategy is to invest in infrastructure indirectly through funds, and also directly, especially in Finland, said Säynevirta. Its indirect investments include a holding in Fingrid, Finland’s transmission system operator.

With regard to Elenia, Säynevirta said the company – a top-tier organisation in the industry – would be empowered by strong, long-term owners who would support the company’s long-term investment programme. The focus would be on weather-proofing the distribution of electricity and developing quality services to customers.

Subject to regulatory approvals, the deal is expected to complete during the first quarter of 2018.